Civium Holdings Pty Ltd v Zakharoff [2008] ACTSC 93 (9 September 2008)

Last Updated: 26 September 2008

CIVIUM HOLDINGS PTY LTD v PETER ZAKHAROFF

[2008] ACTSC 93 (9 September 2008)

EX TEMPORE JUDGMENT

No. SC 708 of 2008

Judge: Rares J

Supreme Court of the ACT

Date: 9 September 2008

IN THE SUPREME COURT OF THE )

) No. SCC 708 of 2008

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: CIVIUM HOLDINGS PTY LIMITED TRADING AS CANBERRA UNITS PLAN SERVICES ACN 121 276 300

Plaintiff

AND: PETER ZAKHAROFF

Defendant

ORDER

Judge: Rares J

Date: 9 September 2008

Place: Canberra

THE COURT:

1. Orders that the plaintiff’s Application in Proceeding filed on 28 August 2008 is dismissed with costs.
2. Directs that the matter stand over to the registrar’s directions list on 7 October 2008.
3. Grants leave to the plaintiff to file an amended originating claim and amended statement of claim on or before 30 September 2008.

1. Peter Zakharoff has been working in the real estate industry for over 40 years, most recently as an employee of Civium Holdings Pty Ltd which trades under the business name of Canberra Units Plan Services.

2. He entered into a written contract of employment with Civium on 26 September 2007. In July 2008 Mr Zakharoff resigned his employment and worked out his period of notice which, on the evidence before me, effectively ended on 25 July 2008.

3. Civium seeks to enforce a restraint of trade contained in cl 26.1 of the contract in the following terms:

“26. During your employment at CIVIUM HOLDINGS PTY LTD and for a period of 12 months thereafter you shall not either as a sole practitioner, partner, manager, employee, director, unit holder, trustee, consultant or otherwise, directly or indirectly:

26.1 Interfere with or attempt to call on or solicit any client of CIVIUM HOLDINGS PTY LTD who you have been introduced to or had a business contact [with] during your employment with CIVIUM HOLDINGS PTY LTD ...”

4. Civium purchased a business previously operated by a company called SPLAN Pty Ltd on 2 October 2007. At that time SPLAN had strata management contracts giving it a right to manage 8,900 units in 521 strata schemes. Mr Zakharoff was employed by Civium as a strata manager. Mr Zakharoff was responsible for the management of 30 developments, including strata plan number 2737, a development known as Space. The Space development had about 92 units, making it one of the larger clients of Civium.

5. There is a dispute as to whether Mr Zakharoff was actually promoted or offered a promotion in a review of his employment which occurred in June 2008. Civium contends that he was promoted to senior strata manager effective from 1 July 2008, making him one of three of its employees in that level of seniority. Four other employees were senior to him, two team leaders, the managing director of Civium, Douglas O’Mara, and his brother Bradley.

6. On 30 June 2008 Mr Zakharoff resigned in writing. He said that he was of the opinion that his efforts on his then employer’s behalf were not appreciated by it, and he saw that fact being confirmed at his employment review in which he was offered a small increase in salary of 3% and a promise of a bonus of $3,000 payable in 12 months’ time. This was in the context in which Civium had increased its strata management fees to its clients by approximately 30% from October 2007 and since then Mr O’Mara said it had lost 20 of its contracts purchased from SPLAN.

7. After Mr Zakharoff tendered his resignation he had a telephone discussion with Michael Brown, a member of the executive committee of the Space units. Both he and Mr Brown have given evidence of that conversation. Although their accounts do not exactly coincide, in substance, what appears from them is that Mr Zakharoff indicated during the conversation that he would be unable to deal with matters at the next executive committee meeting of Space because he had tendered his resignation. Mr Brown said that he had called to discuss some maintenance issues, which he wanted to deal with at that meeting.

8. Mr Brown appears to have had, and understood the other executive committee members to have had, a high regard for Mr Zakharoff’s services and was disappointed to learn that he had resigned. Mr Zakharoff said that he was unsure whether he told Mr Brown during that conversation that he intended to establish his own property management business. But, he asserted that he made no invitation to Mr Brown or Space’s executive committee to retain his services when he began his new venture.

9. Mr Zakharoff said that Mr Brown indicated during the course of the conversation that he would prefer to retain his services if Mr Zakharoff continued in the industry and that subsequently Mr Zakharoff received a request - either from Mr Brown or another member of the executive committee of Space - to attend a meeting on 12 July with the executive committee.

10. At that meeting the committee expressed dissatisfaction with the proposal it had received from Civium for management services for the forthcoming financial year. In particular, the committee members told Mr Zakharoff that the management fees had been increased and services reduced. Mr Zakharoff said that he was asked by the executive committee if he would provide them with a proposal for marketing the property. Subsequently on 29 July 2000 he did so, presumably through the new company he had established called Vogue Body Corporate Management Pty Limited.

11. Mr Brown’s recollection was that during their earlier conversation on the telephone he had asked Mr Zakharoff what they would do with their outstanding issues, to which Mr Zakharoff responded with words to the effect that he would assist with the changeover. Mr Brown said that he would seek the approval of the committee if Mr Zakharoff went elsewhere because they would prefer to continue to deal with him and that Mr Zakharoff replied they would see what happened.

12. In the meantime, Timothy Maly, who replaced Mr Zakharoff as the Civium representative responsible for dealing with the executive committee of Space, had a meeting with the executive committee. Seemingly, that meeting did not satisfy the executive committee that Civium’s services should be retained.

13. Mr Zakharoff’s actions in receiving a proposal which would have the effect of benefiting him at his then employer’s, Civium’s, expense appear to have amounted to a breach of his obligation or duty of fidelity and would have placed him in a conflict of interest while he was working out his period of notice. However, Civium is not seeking to restrain Mr Zakharoff from continuing to engage in the new relationship that his company, Vogue, has now established with Space in substitution for the one which Civium had. But, this conduct is the only actual evidence of a dealing between Mr Zakharoff and any client of Civium in evidence.

14. Mr O’Mara gave evidence that he had conversations with two persons on 20 August (sometime after Mr Zakharoff ceased to be an employee). They recounted to Mr O’Mara what others had told them, to the effect that Mr Zakharoff was operating on his own account in an apparently competing business. In one of those conversations, Mr O’Mara claimed that a competitor told him that Mr Zakharoff had left and was opening his own strata management company and that he, the competitor, had heard that Civium had lost a number of owners corporations to Mr Zakharoff, including one called New Acton. However, as Mr O’Mara noted, New Acton had not been lost as a client of Civium. Indeed, there is some evidence to suggest that it is currently operating under a contract with Civium for a term of three years.

15. There is no other evidence of any actual contact by Mr Zakharoff with the clients of Civium since he left, or of the nature of the contact he had with Space before he left. There is no evidence of any other client having been lost by Civium to Mr Zakharoff or indeed to anyone else since he left, or since he tendered his resignation.

16. Civium commenced these proceedings by filing an originating process on 28 August 2008. Today is the return of its application for interlocutory relief seeking to enforce, in substance, cl 26.1 through an interlocutory injunction. Both parties recognise that, in a substantive sense, these proceedings might operate by way of final relief. Although I indicated that I was prepared to allow cross-examination of any deponents on their affidavits, neither party applied to do so.

Civium’s claim for an interlocutory injunction

17. In order to consider whether interlocutory relief is appropriate, I must be satisfied that Civium has made out a prima facie case in the sense that, if the evidence remains as it is, there is a probability that, at trial, the action will be held entitled to relief. Secondly, Civium must establish that the inconvenience or injury which it would be likely to suffer if an injunction were refused is outweighed by the injury which the defendant, Mr Zakharoff, would suffer if an injunction were granted: see Australian Broadcasting Corporation v O’Neill [2006] HCA 46; (2006) 227 CLR 57 at 81-82 [65] per Gummow and Hayne JJ with whose statement of the principles for the grant of interlocutory relief Gleeson CJ and Crennan J agreed at 68 [19]; see also Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618 at 622-623. As Gummow and Hayne JJ explained in O’Neill 227 CLR at 82 [65], it is sufficient that the plaintiff show a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo until the trial. How strong the probability needs to be depends upon the nature of the rights which the plaintiff asserts and the practical consequences likely to flow from the order it seeks.

18. In the present case, Civium argues that, because of the evidence of Mr Zakharoff’s conduct while its employee in relation to Space, it has established, quia timet, that there is a sufficient likelihood that, if left unrestrained, Mr Zakharoff will continue to engage in conduct amounting to breach of cl 26.1.

19. I am of opinion that I should reject this argument for interlocutory relief. It is now more than six weeks since Mr Zakharoff ceased to be an employee of Civium. No evidence has been given of any other client, apart from Space having been interfered with, contacted or solicited by Mr Zakharoff.

20. There is nothing in the material before me to indicate that Mr Zakharoff will contravene cl 26.1, or that whatever view one might take of the Space transaction to which I have referred, he is likely to engage in similar conduct in the future. Civium argues that I should infer from the failure of Mr Zakharoff to offer an undertaking to abide, in effect, by cl 26.1, that he will not do so. It argues that in light of his actual conduct, I should infer that he does not understand and will not adhere to the clause because of the way in which he responded to Civium’s claim in his affidavit as follows:

“I have not telephoned, attempted to call, contacted, solicited, nor interfered with or disputed the plaintiff’s client’s contractual arrangements with its clients (sic). The only client of the plaintiff I know manage is [Space]”.

21. I am of opinion that this argument is misconceived. It is not for the defendant in an application for an interlocutory injunction to offer undertakings when there is no substantive evidence of any continuing threat to engage in conduct in breach of his obligations, or asserted obligations, to the plaintiff. Rather, the plaintiff needs to demonstrate the probability that its rights will continue to be threatened by the behaviour of the defendant in breach of the defendant’s obligations.

22. I am not satisfied that there is a strong, or indeed, a prima facie case that Mr Zakharoff will act in breach of cl 26.1 in the future. That is not to say that I would, in any way, condone his behaviour in respect of the dealings with Space while he was an employee. It may be that, at a trial, that dealing will be more fully explored, but it is not the subject of any claim for injunctive relief in itself. So far as it might demonstrate any propensity of Mr Zakharoff to engage in contravening behaviour in the future, I am satisfied on the evidence before me that there is, at this stage, no threat that he will do so. Of course, circumstances may change and evidence may emerge which might entitle Civium to apply on a further occasion for relief.

Restraint of Trade

23. There was also some attention given in argument to whether the restraint in cl 26.1 was able to be justified under the common law doctrine respecting restraints of trade. The fundamental rule is that a restraint must be reasonable in the interests of the contracting parties. As Gibbs J observed in Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40; (1973) 133 CLR 288 at 316, the test is traced back to Lord Macnaghten’s famous speech in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at 565. It has been applied on a number of occasions by the High Court: Rocca Bros [1973] HCA 40; 133 CLR 288; Buckley v Tutty [1971] HCA 71; (1971) 125 CLR 353 per Barwick CJ, McTiernan, Windeyer, Owen and Gibbs JJ, and Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 at 139 [27] per Gleeson CJ, Gummow, Kirby and Hayne JJ.

24. At a trial there may well be issues as to whether a period of 12 months in cl 26 is an appropriate restraint. There was some evidence that, in general, executive committees of strata schemes enter into contracts with management companies such as Civium and Vogue for periods of 12 months, although there is some other evidence that the contract with New Acton was for a longer period. That may help to explain why the 12 months was selected as the term in cl 26.

25. Of course, it is not an appropriate matter on an interlocutory application such as this to determine finally what might be or not a reasonable restraint of trade. There is also an issue between the parties about the width and terms of the expressions in cl 26.1.

26. It is not necessary for me to assess whether the clause is, in fact, enforceable having regard to the view I have reached as to the strength of the plaintiff’s prima facie case in which I have assumed that cl 26.1 would otherwise be enforceable. However, it seems to me that the clause overreaches any reasonable restraint if it seeks to prevent Mr Zakharoff from being approached by clients independently of his own contact with them because those clients may no longer wish to remain as clients of Civium.

27. Again, I do not have to decide that matter finally, but there are questions as to the precise meaning and extent of the words of restraint in cl 26.1. One is whether it is reasonable to prevent Mr Zakharoff from having a business relationship with a client of Civium’s where he had had a “business contact” with such a client while employed by it. Precisely what a “business contact” connotes will no doubt be an issue at a trial.

28. For these reasons I am not satisfied that Civium has established a prima facie case entitling it to interlocutory relief. I dismiss its application.

I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Rares

Associate:

Date: 23 September 2008

Counsel for the Plaintiff: Mr R Clynes

Solicitor for the Plaintiff: Bradley Allen Lawyers

Counsel for the Defendant: Mr DP Shillington

Solicitor for the Defendant: Maurice Blackburn Lawyers

Date of hearing: 9 September 2008

Date of judgment: 9 September 2008